Ending Social Security:
why and its consequences
There is a problem with our President’s sales pitch for Social Security Privatization. The American economy is aging, and those big gains are history, long gone. Because our Social Security
insurance payments purchase Treasury bills, our Social Security trust fund is, in effect, a giant bet on the U.S.
economy. Our "profits" on this investment in ourselves, cautions Krugman, are "equal only to the rate of economic growth"
in the USA. Think of the total value
of all investments in the USA. Slice it any
way you want—into stocks, bonds and Treasury bills held in private accounts or public accounts. Change the size of the
slices or rename them from "public" to "private"—you can't increase the ultimate size of the America
But then, who says Mr. Bush expects us to invest in America?
Remember: There is no America,
Mr. Beale. It is the international system of currency that determines the totality of life on this planet.
The USA's economy grows
by 4% in a very good year. But China
is rising at 9% per year, twice as fast as America.
There is one flaw in Krugman's calculations. Krugman's one error is that he's a patriot, and therefore cannot understand our
rulers' cold agenda. As professor Joseph White of Case Western
Reserve University explained to me:
Security privatization is the realization that America's economic growth is at a plateau, on a flat line—whereas China
and India and Malaysia are taking off—providing market returns twice that of U.S.-based industry.
In other words, Social Security privatization is about moving our capital from a dying economy (America)
to rising economies, like
The money flows out, it flows back in, then it flows out again.
There is nothing new in this process of national abandonment. In the twentieth century, the elites of Argentina
and other Third World nations sold their plantations and mines and infrastructure to foreign
(i.e., American) multinational corporations. Argentina's
"ricos" cashed out and moved to Miami. In the twenty-first
century, it is America's elite that
is cashing out, abandoning ship. They will maintain their condos in New York,
but their capital will live abroad. Your Social Security funds will subsidize their escape, leveraging their foreign ventures.
But what do we do with the old folk? While some of our Social Security tax goes to buy Treasury bills, most
still goes to pay today's retirees. This is America's
"pay-as-you-go" system. How do we keep up payments to those already retired, who've paid their insurance over a lifetime,
if we withhold our money for private accounts? We can't. The privatizers in the Administration call this potential for disastrous
collapse of old-age pensions a "transition issue." In fact, it's a debt of up to $3 trillion to current retirees. We must
get it by borrowing or by cutting benefits or by taxation (in other words, a Social Security tax to replace the Social Security
tax). There's only one way around this "transition" conundrum: The Soylent Green solution. I've heard the White House
is carefully studying the transition method used in that old sci-fi classic: The elderly can be turned into a cheap source
Level Field: China & India for all
My own sequel to Network has an odd and unbelievable opening. The new Mr. Beale flies business class
from Frankfurt, Germany, to Bangalore, India. On arrival, he is
whisked off in an air-conditioned limo by a fabulously rich Indian dot-corn CEO to a golf course. On the greens, Beale's replacement,
"Thomas Friedman," has an epiphany: These eighteen holes on the Arabian Sea are just like the links in Stamford,
Connecticut, which are just like the back nine in Palm Beach which are similar to the greens in Singapore. "The world is flat!" he declares, one
large economic fairway, smooth and wide and freshly mowed, with no obstacles, no mountains to cross, no borders or fences
between you and the flag sticking out of the hole. And every man and woman on the course is equal, an international brotherhood,
at the tee-off.
Friedman imagines that, through some high-tech Internet abracadabra, all the greens will one day connect
across the planet into one giant economic fairway. In his future, you will be able to play straight through from Bangalore to Boston to Bangkok to Berlin. But first, there will have to be some radical changes
in the way business is done: Obsolete trade barriers between nations will have to come down, stodgy public industries must
be sold into private entrepreneurial hands, the entangling weeds of business regulation must be slashed, the sand traps
of nitpicky bureaucracies abolished, the obstructions of selfish labor union contracts cleared away and— presto!—prosperity
and peace shall reign forever and ever. Fore!
Frighteningly Network's sequel is not a movie. Thomas Friedman really did (he writes) fly business class
to Bangalore, India, played eighteen holes with an olive-skinned CEO
and on those links had the geomorphically suspect vision that led him to write The World Is Flat.
Friedman has spoken with people of all colors and genders around the world: the Chairman of Intel, the
dictator of Malaysia, sweatshop owners, currency speculators and Silicon Valley magnates. And everyone in business class agrees that this brave new prosperity will at first require some sacrifices.
Friedman announces who should do the sacrificing:
no longer sustain its 35-hour workweeks and lavish welfare states because of the rising competition from low-wage, high-aspiration
China, as well as from India and
And thus, Friedman concludes, China will snuff the torch of "European socialism." It's simple arithmetic, according to Friedman. Europeans can't
"preserve a 35-hour workweek in a world where Indian engineers are ready to "work a 35-hour day."
What he need not add is that if a 35-hour week is a frivolous luxury for the French, then the 40-hour week
in U.S. law is hardly less
extravagant. Luckily for us, it too will soon go. (See "The Grinch That Stole Overtime" in Chapter 5.)
Just as Europe's 35-hour week cannot survive global
competition, and America's 40-hour week cannot survive, neither can India maintain a 50-hour week. The very month that Friedman's The World Is Flat hit the bestseller list, India's government lifted the limit on the workweek
in textile sweatshops from 50 hours a week to 60. After all, Indians too have to compete against China. China's workweek? The clothes in Wal-Mart with the chilling label "New Order" are manufactured by the People's
Liberation Army. What are the work hours of Chinese conscripts? If you know what's good for you, you won't ask.
Someone who did ask was Harry Wu, the only man I've ever met who broke into a prison. Born in China, jailed there, then exiled to America, Wu returned to his homeland and snuck into his
former jail compound to document the brutal work conditions in China's prison factories, the world's largest pool of enslaved labor for hire. Wal-Mart, by the way, prohibits its
Chinese suppliers from using shackled labor. However, the retailer can't inspect prisons and therefore, notes Wu, can't
possibly know where all its goods come from. Little matter, all of China is a prison economy. Any Chinese citizen who challenges, as Wu did, working conditions have "high aspirations"
beaten into them.
Like Thomas Friedman, I've also flown to Bangalore, admittedly not business class. And to tell the truth, I didn't even know there was a golf course there.
Most Indians don't know that either. But that's nitpicking, I suppose. Friedman is correct in that I also found Indians willing
to work a 35-hour day. And he could have added that, in Karnataka State, which includes Bangalore, Indian families are ready to sell their children as
"temple dancers"—sex slaves—just to survive.
Friedman praises the New India, deregulated, privatized and freed of the shackles of Old India's socialist
welfare state. I've seen the New India: Nearly a billion people in shacks supporting a teeny minority's right to shop in air-conditioned
malls. It is a Fritz Lang film in Hindi. Just look at the numbers. India's productivity has exploded, tripling in two decades to the world's fourth largest in purchasing power. But not
many Indians are doing the purchasing. The average Indian can't even manage eighteen holes on the weekend—79.9% of the
population still makes under $2 a day. India's government could have addressed this imbalance with a progressive income tax. But that's so New Deal, so Round
World. Rather, to the applause of the International Monetary Fund, India's free-market-mad central government figured out how to make the unequal distribution of wealth even less
equal. The government now taxes those wages of $2 a day through a regressive sales tax, the VAT ("value-added tax").
"flat earthers" might say the two-bucks-a-day wage is a vestige of the Old India, of rural villages with oxen-plowed fields.
What about the New India, the new manufacturing colossus that lifted India's gross domestic output by 48% per worker in just six years (1997-2003). In that same six years, wages in this
modernized manufacturing sector went from 25 cents an hour to ... 23 cents. Who got the gap? That is, who pocketed the value
of the extra output, which, obviously, didn't go into wages? One hundred percent of the value of the new manufacturing
output went to India's
richest one percent, the new pashas of sub-continental industry, who've doubled their slice of the nation's income over
the past decade.
The avalanche of publicity about America's I.T. outsourcing to India features images of futuristic uplink satellite dishes shuttling code to Seattle. But the high tech sector employs barely one million Indians, about one-third of one percent of the workforce.
Indian's Blakean Dark Satanic textile mills employ 38 million.
Doubtless, a new "middle" class of technocrats has profited. Yet, many of India's educated now find themselves, just like programmers
in Palo Alto, in a murderous intercontinental
competition to cut their wages in hopes of buying themselves a job in the new digital sweatshops.
As it is in India, so it is in China, parts of South America and most of Europe.
The world may be "flat," Mr. Friedman, but it is tilted. India's wealth, Europe's wealth, China's wealth, the entire planet's wealth, with precious few exceptions, is flowing from those who have a little to
those who have a lot. Here are the stats:
• Since the fall of The Wall, Russia, formerly of the Soviet
Union, has gone from zero billionaires to 36. What's wrong with that? Answer: There's
no such thing as a free lunch—or a free billionaire. The transfer of wealth was paid for by demolition of the health
care system. Spending on medicine and hospital care fell by two-thirds after
the Soviet Union became Russia, and, according to the
International Union for the Scientific Study of Population (Paris), "about half the [remaining] money spent on health care
benefits an elite medical network that serves only the best connected 1%" of Russia's population. As a result, according to
the Center for Disease Control in Atlanta, Russian life expectancy has fallen by 4 years. Unless you're an oligarch, you die young. Now that's pension
• Poland, following free-market Pied Pipers after the implosion of the Soviet Union, had, by 2005, successfully unemployed 18% of its workforce. That's the official number, which would have been
higher, except that herds of Poland's skilled workers have been sent to rove Western Europe. The desperate droves of Polish workers were
used as a tool for bending Germany's workforce into submission. From 1995 to 2003, the average German's pay was cut 4.7%.
• China, Mr. Friedman's heartthrob,
is, he tells us, our future. How looks it out there in The Future? In a single year, 2005, China's richest forty businessmen
saw their net worth rise by 44% to $26 billion. That's in U.S. dollars—obtained from U.S. pockets. And they aren't
sharing. Employees in their new entrepreneurial private companies earn an average 8,033 yuan ($994) a year. Those workers
stuck in the "past"—the old state enterprises—earn nearly twice as much: 14,577 yuan ($1,803) a year. The pay
cut has slid into the pockets of "entrepreneurs," the new factory owners, who take home twenty-five times their average worker's
The new Mr. Beale describes the latest fashion craze:
straight jacket is the defining political economic garment of globalization . . . tailored by Margaret Thatcher. Ronald
Reagan sewed on the buttons.
And what does one have to do to shimmy into this attractive madhouse couture?
Deregulate industry, drop trade barriers, free currencies, cut government spending, de-unionize, cut pensions, welfare
and subsidies, and make government whimper at the feet of the entrepreneurial gods and obey them.
But there's resistance. Not all the inmates want to be buckled into the latest design,
and Friedman/Beale just can't stand it: This is a bad time for France and friends
to lose their appetite for hard work.
The Danes in particular have made sloth a policy. Blithely unaware that Indians are
working 35 hours a day, the Danes average 22 hours
a week. Partly that's the result of the "laziness" written into law: employers must provide a minimum of
five weeks paid vacation. The official week is 37 hours, but non-vacation weeks average 28. Worse, there's paid maternity
leave! The Danish minimum wage is $10 and health care is free. By Beale/Friedman economics, Danes should be falling off the
edge of the flat world. But look at this: Danes earned an average $26 an hour in 2001, a solid 61% more than Americans. By
2006, the difference became even more embarrassing. And with a workforce 80% unionized, the nation is regulated to a fare-thee-well.
Yet they do fare quite well.
Norwegians do even better than their Danish brothers. The workforce is wealthier, the wealthiest in the world.
You could say that's because Norway has oil. But so does Russia, so does Nigeria, and so, for that matter, does the USA. But whose oil is it? In Norway, it's the Norwegians'—that
is, the oil company is state-owned and its profits shared. One has to ask why
the Thomas Friedmans and Milton Friedmans want us to follow the goose-stepping example of Pinochet's Chile or the Darwinian horror
show of China as economic guiding lights. Why imitate India and Poland, where more and more
is produced by those making less and less, when far more successful examples shine under the midnight sun?
How did the Scandinavians get so rich? Norway and Denmark are, with Sweden, the least economically
polarized nations on the planet: Almost no one's very rich and almost no one poor. The official international standard
of economic inequality is called a "GINI" index. The Scandinavians are all at a low (i.e., very equal) 25. India is 33 and China a feudal 45. The USA lies uncomfortably close
to China at 41.
The Organisation for Economic Co-operation and Development, OECD, which gathers these
statistics, explains that Scandinavia's low hours and lots of rules produce big paychecks. In these nations, employers are forced to make their
profits by investing more per worker to hike productivity. This is the opposite of the Chinese/Indian/Rea-ganized American
model of making profits by cutting wages.
No wonder Scandinavians are in no mood to slip on Ronald Reagan's straightjacket. Other Western Europeans, from France to Holland, not so far behind
Scandinavia, are also resisting.
Here's the problem for the owning class of this planet. The lackadaisical Danes and Swedes have the
highest pay, best health care, longest vacations, and safest pensions anywhere on earth, and the French, Luxemburgians and
other Europeans were, for decades, not far behind. How do you persuade the well-cared-for Europeans to give it all up?
Grab them by their currencies.
THE EURO DOLLAR, THE WEDGE THAT SPLLITS
THE LOG OF WORKERS BENEFITS
and immense, interwoven, interacting, multi-variate, multinational dominion of dollars! Petro-dollars. Electro-dollars.
Multi-dollars, Mr. Beale.
In 1999, Europe first adopted the "euro"—the multinational
currency designed, as the movie Network predicted, to replace national coins: German deutsch marks, French francs, Spanish
pesetas, Danish krone and the rest.
But the euro wasn't invented in Europe—it
was created in the good old USA, in New York, by Robert Mundell.*
Mundell, called the Godfather of the Euro, won a Nobel Prize for it.
Who is this Mundell? The “golden straightjacket” is Thomas Friedman’s madhouse fashion
metaphor for “Reaganomics,” the free-market, free-trade, government-free, dog-eat-dog economic free-for-all that
also goes under the alias “supply-side economics.” The inventor of Reaganomics, Thatcher-nomics and “supply-side”
economics? Robert Mundell.
“Ronald Reagan would not have been elected President without Mundell’s influence,” wrote
The Wall Street Journal’s Jude Wanniski. Mundell was the guy whose brain stayed awake flattening the world while
In the eighties, excepting Margaret Thatcher’s Britain, Western Europeans saw no reason to make a mad dash to deregulate their economies. And this drove Mundell
just crazy. It started with his toilet, Mundell told me. In a long chat we had in 2000, he told me about the travails
of owning a castle in Tuscany.
(Like many “flat world” supply-side economists, Mundell created prosperity—for himself.)
“They won’t even let me have a toilet!” he said, which seemed like a mighty uncomfortable
and unfair rule. His problem was that, to preserve the ancient structure, local officials wouldn’t let him simply
rip out a couple of walls to ‘put in a tub and water closet. He concluded, “Europe is over-regulated.” And he was going to do something about it.
He had other complaints. “It’s very hard to fire workers in Europe,” he said.
To solve the problems of putting toilets where you want them and firing workers when you don’t want
them, and in sum, to rip down the entire structure of employee protections enjoyed on the continent (minimum wage, lazy workweeks
and all), he invented the euro. The euro is designed to be the battering ram to break down the entire edifice of worker
protection rules and taxes on businesses that support the welfare state. The euro and free-market economics are as inseparable
as flies and feces.
The Godfather of the Euro explained how it will work: “Monetary discipline forces fiscal discipline
on the politicians as well.” What he means is that every Euro nation must adhere to strict limits on borrowing
(no more than 60% of GDP) and on deficits (no more than 3% of the government budgets). Furthermore, nations will no longer
have their own central banks printing money. That’s all quite extraordinary, really. No congress of a European
nation may call on the key tools used to pull a nation out of a recession (increased government spending to create jobs, lowering
interest rates to boost investment, printing more money to create demand through more liquidity).
parliaments are castrated—their powers to affect their nation’s economic destinies cut off. Isn’t that
a bit, uh, un-democratic? Forget it: There is no democracy, Mr. Beale.
If a nation can’t control its own interest rates, borrowing, or money supply, how can it keep up
employment? Answer: by stealing the jobs from their Euro neighbors, luring industry away by cutting out rules and slashing
business taxes. Mundell foresees a Europe unburdened of unemployment
compensation, minimum wages, chemical safety regulations and government medical insurance. Out they will go, as well as rules
barring the landlord class from Euronating wherever the hell they like.
Little Red Book of Chairman Rob
Denmark resisted the trend. It voted down the euro and
held fast to its krone coins and its chill workweek. But for how long? The new Mr. Beale of the Flat World is warning
history will record that it was Chinese capitalism that ended European socialism.
Now we’re getting to the real point of the New Order. The shorter workweeks, unemployment
insurance, all that stuff that the French call “Le New Deal”—it’s all got to go, Pierre.
Friedman’s language is a bit odd, no? He defines “socialist” states as those with workweek
limits, unemployment compensation and union work rules. The “capitalist” state, China, is the one where the state owns and controls
what Marx, Lenin and Mao called, “the means of production.” I’m sorry, you can call China a chicken but that won’t fly. If China is now a capitalist free-market state, then I’m
The truth is that China’s economy soared because it stubbornly refused the Friedman free-market mumbo-jumbo that government
should stop owning, regulating and controlling industry. Its new inequality is not the engine of its success but
the measure of the power of a thin elite that is sopping up the productivity gains.
isn’t buying Free Markets Uber Alles. Its markets are no freer than its press. The truth is that regulation and state
control are its economic locomotives. For example, China’s announcement that it would “revalue” the yuan covered over a more important notice that China would henceforth bar foreign ownership of its
steel sector. Chin has built a powerhouse steel industry larger than America’s or Europe’ by directing the funding, output,
location and ownership of all factories. And rather than freeing industry through opening its borders to foreign competition,
the Chinese, for steel and every other product have shut out in-bound trade except as it suits China’s own needs.
won’t join NAFTA or CAFTA or any of those free-trade clubs, and joined the WTO only on the sotto voce condition
it could ignore all of the rules. In China, Chinese industry comes first. And it still the People’s republic, where the state and army own
an unknown number of Wal-Mart’s 4,800 suppliers. In an interview just before he won the Nobel Prize in economics, Joseph
Stiglitz explained to me the China’s huge financial surge of 9.5% per year began with the government’s funding
and nurturing rural cooperatives while protecting fledgling industry behind high, high trade barriers.
It is true that China’s growth also got a boost from ending the blood-soaked self-flagellating madness
of Mao’s Cultural Revolution And China, when it chooses, makes use of markets and market pricing to distribute resources
efficiently. However, Chinese markets are as free as my kids: They can do whatever they want unless I say the can’t.
Yes, China is adopting select elements of “capitalism.” That’s the ugly part. Chinese capitalism appears
to be limited to real estate speculation in Shanghai, making millionaires of Communist party boss’ relatives and to bank shenanigans worthy of a Neil Bush.
But it is n< the Shanghai
skyscraper bubble that is allowing China to sell us $2C billion more goods a year than we sell them. By rejecting free-market fundamentalism, China’s government can easily conquer America markets where protection is now deemed
Am I praising China? Forget it. China is Stalinist in governance capitalist in sales pitches and feudalist in the division of wealth and power. This
is one rank dictatorship that brutalizes, terrorizes and tortures. All must kowtow to the wishes of Chairman Rob—Wal-Mart
chief Robson Walton.
Can this planet imitate Chinese success without Chinese autocracy? Yes, there is another way. I found
it in an India not visible from Bangalore’s golf courses.
In 1995, I dropped in on a fishing village in Kerala,* a jarring but stunning day-long railway journey
from Bangalore. Most of the village’s
fishermen worked from motorless dug-out log boats. Their language is Malayalam, but a large banner slung between two
coconut trees announced in English, “WordPerfect applications class today.” After they brought in the catch, the
locals practiced programming on cardboard replicas of keyboards.
What made all this possible was not capitalist competitive drive (there was no corporate “entrepreneur”
in sight), but the state’s investment in universal education and the village’s commitment to developing
opportunities, not for a lucky few, but for the entire community. The village was 100% literate, 100% unionized, and 100%
committed to sharing resources through a sophisticated credit union finance system.
This was the community welfare state at its best. Microsoft did not build the schools for programmers—the
corporation only harvested what the socialist communities sowed.
The economist Amartya Sen
won the Nobel Prize in 1998 for predicting that Southern India, with its strong social welfare state, would lead the
economic advance of South Asia—and do so without the Thatcherite sleight of hand of pretending that riches for the few
equates to progress for the many.
* Robert Mundell, (1932, Canada),
economics professor at Columbia University, Mundell is best known for both his support of supply side economics and his papers
on international exchange rates. These papers influenced the development of the
Euro. After wining the Nobel Prize in 1999, he has made several appearances on
is an independent state in Southwest coastal India with a GDP of 12,000 Rupees, and a social service structure similar to the Scandinavian countries.
Skeptics has gathered a set of articles. On globalization.
FUNDAMENTAL MYTHS PERPATRATED BY BIG BUSINESS
1. That free trade will bring increased prosperity to the developed world.
2. That free trade will on an average bring increased prosperity to the underdeveloped
world (as compared to a more regulated road with conscientious government regulations)
3. That unions make for a sluggish economy, higher prices, and an inability to compete
with foreign goods--thus the need for a protective tariffs.
Skeptics ought to be cautious of conspiracy theories. Often they are
far-fetched—such as Francis Bacon writing Shakespeare and that the Negroes developed a high culture, which included
being the pharaohs of Egypt. Others like someone besides Lee Harvey Oswald
assassinating Kennedy are plausible on the face of it. Still others have overwhelming
evidence in their support. One which we subscribe to is that the banking community
and big business have an agenda of globalization. These consequences are
much different than what their media portrays.